Development experts: Incentives stalemate is starting to hurt Newark

By Tom Bergeron
Newark | Mar 9, 2020 at 5:15 am

The tax incentives battle may be taking place in Trenton over issues in Camden — but it’s sure being felt in Newark.

At least, that was the feeling of many of the panelists at the annual Real Estate Market Forecast event presented by the Newark Regional Business Partnership last Thursday at the Robert Treat Hotel in Newark.

“We’re hearing from our residential developers that it is very fiscally challenging to do residential projects today with the 20% inclusionary development,” Lisa John-Basta said. “A lot of them have approvals, but they are not moving forward with the actual physical construction due to the financing aspect of it.”

John-Basta is on the Real Estate, Development and Land Use Group and a member at Chiesa Shahinian & Giantomasi, one of the longtime leaders of real estate law in the city. She said the problem is far-reaching.

“Particularly with respect to the residential and commercial development,” she said. “On the industrial side and warehousing, not so much, because to build is a lot cheaper than to build and fit out a residential building. But with respect to residential and commercial, we represent developers who have projects that aren’t coming out of the ground. Developers that own acres on the waterfront aren’t doing anything because they are waiting to see what (Economic Development Authority) is going to do.”

This uncertainty around incentives is just the start of the issue, John-Basta said.

“Everybody’s very eager to know what’s going to be coming out of the EDA as far as incentives,” she said. “To add on to that, we’re looking to get money wherever you can. So, a lot of developers are interested in tax abatements and, in the city of Newark, while you can by state statute get a 30-year tax abatement, Newark has limited the duration of types of maintenance for certain types of projects.

“Additionally, if you do receive a tax abatement, and you have a project (totaling) more than $25 million, you are obligated to do PLAs.”

PLAs, or project labor agreements, have requirements for union labor, which increases costs.

“When you add on the 30-year tax abatement and no state incentives and mandatory PLA, it just makes projects very hard to get out,” John-Basta said.

Jennifer Mazawey, a leading real estate attorney with Genova Burns — another longtime leader in the Newark real estate scene — agreed.

Incentives, she said, are vital.

“Especially in a place like Newark,” she said. “The program is supposed to be a gap filler. There are gaps. Because the rents here are not like they are in other places, in particular, Jersey City and Hoboken. Our clients need to fill the gap, and they need an incentive to do that.”

Elizabeth Limbrick, a senior brownfields adviser at the EDA, understands the issue. As a longtime project manager at New Jersey Institute of Technology, she understands the development costs that come with Newark.

“I’ve been working in Newark for about a decade now,” she said.

And Limbrick said she knows Gov. Phil Murphy has proposed a new series of incentives that will help the city. She just can’t say when they will be enacted. Until then, Limbrick said, the EDA is working with what it has.

“We have a lot of programs that we’re doing right now,” she said. “I just want to make sure that that’s really clear. But, then, we have other ones that are proposed. I need to emphasize that they are proposed, and they are in the Legislature. So, if anyone can tell me when they’re going to come out of the Legislature, please let me know. We just anticipate that it will be soon.”

Limbrick anticipates they will be helpful, too, she said.

“We have principles driving our entire approach to the tax credit programs,” she said. “We’ve increased focus on targeted industries, global or U.S. headquarters, (research and development) activities and foreign direct investment. So, that’s one of the pieces of it. We’re really prioritizing new job creation rather than retaining jobs. And, specifically, we’re looking to encourage job creation in urban centers, distressed communities and other communities that have a good public transit as well.”

In other words, the EDA wants to do right by Newark and other urban centers, Limbrick said.

“One of the big challenges that I see is gentrification, and how do we manage the development in a way that is going to benefit those people who have been here, and been here through the rough parts and been here through the parts where there’s been disinvestment,” she said. “We need to make sure that they’re accommodated. And I think Newark is No. 1 in doing that. Honestly, when you look around the country, I cannot think of a city that’s doing more aggressive policies and doing a better job of dealing with gentrification than Newark. That said, there’s still a lot to be done.”

Mazawey agreed there is plenty of good going on in Newark — and more work that needs to be done.

“We are in the midst of what has been a prolonged cycle of growth on the real estate side,” she said. “And we’ve been able to really benefit from that. And I think Newark as a city has seen that and wants to be a part of that upswing. Just from the city side of things, we’ve seen a lot of attempts to streamline processes, have people in place that can help make decisions and can help move these transformative projects out of the pipeline and into construction. The Ironside Newark building is a perfect example of that. It’s open and occupied and has some really marquee and fabulous tenants, like Mars Wrigley.”

City officials, Mazawey said, deserve credit.

“The changes that we’ve seen in the city over the course of the last several years to try to help that progress has been a big part of that,” she said. “There are still challenges because it’s still a bureaucracy. And I think that we continue to see that and that’s going to be (the case) in any major city.”

In the end, she said, it’s a matter of money.

“There continue to be challenges on the finance side,” she said. “We have clients who are still looking for incentives — and are really focused on getting those incentives to move their projects into construction.”

Read more from ROI-NJ on the event: